'Again 2018?' Is Celltrion Healthcare aiming for KOSPI transfer effects through merger with Celltrion Pharm?

Celltrion's Stock Price Doubles Following 2018 Transfer to KOSPI Market
Concerns Over Simultaneous Transfer of Top Market Cap Companies from KOSDAQ
Merger Expectations Highlight Blueprint for Entry into Chinese Biosimilar Market

[Asia Economy Reporter Park Hyungsoo] Seo Jung-jin, chairman of the Celltrion Group, mentioned the possibility of a merger between Celltrion, Celltrion Healthcare, and Celltrion Pharm, causing stock prices to fluctuate. This appears to be influenced by a learning effect from the past when Celltrion's stock price surged sharply around February 2008, when it moved from the KOSDAQ market to the KOSPI market.

On the afternoon of the 16th, Celltrion's stock price was trading at 181,000 KRW, up 2.55% from the previous day. Celltrion Pharm surged more than 20%, and Celltrion Healthcare also rose about 8%.

Chairman Seo said on the 15th (local time) at the JP Morgan Healthcare Conference held in San Francisco, USA, "Celltrion functions in bio, Celltrion Healthcare in distribution, and Celltrion Pharm in chemically synthesized pharmaceuticals," adding, "Around next year, we will ask shareholders whether to merge, and if shareholders want it, we will proceed accordingly."

Celltrion's market capitalization exceeds 23 trillion KRW. Adding the market capitalizations of Celltrion Healthcare and Celltrion Pharm, which are listed on the KOSDAQ market, the total exceeds 32 trillion KRW. If the merger is successful, the KOSDAQ market will lose both its largest company by market capitalization, Celltrion Healthcare, and its 15th largest company simultaneously.

In the past, Celltrion accepted shareholder demands and moved from the KOSDAQ market to the KOSPI market. At the end of 2017, Celltrion's stock price fluctuated between 170,000 and 190,000 KRW, but on March 5, 2018, it surpassed 360,000 KRW. This was largely due to the inflow of funds tracking the KOSPI 200 index.

The merger of the three companies is not easy because shareholders with intertwined interests must agree on a merger ratio that is understandable. However, based on past cases, Chairman Seo appears to have confirmed that if shareholders of Celltrion Healthcare and Celltrion Pharm strongly desire it, the management can push forward with the merger.

On the same day, Chairman Seo also stated, "We plan to build the largest biopharmaceutical production facility in China with a capacity of 120,000 liters and establish a direct sales network," adding that they are close to finalizing a contract with a local Chinese government.

China is considered the world's second-largest pharmaceutical market after the United States. Celltrion plans to build a portfolio of 16 products by 2030 and is pursuing production plans for the local domestic market as well as large-scale CMO (Contract Manufacturing Organization) plans. In 2017, Celltrion received approval from the China Food and Drug Administration for clinical trials of Remsima. Celltrion is the first foreign company to receive clinical approval for biosimilars in China.

The Celltrion Group is also entering the diabetes market. Chairman Seo announced plans to develop insulin biosimilars and stated that through technology acquisition and both independent and joint development methods, they will enter the global diabetes market worth 40 billion USD (46.5 trillion KRW).

While revealing the possibility of a merger, Chairman Seo presented a future blueprint, sending an optimistic signal to Celltrion Group shareholders. Going forward, the stock price volatility of the three listed companies in the Celltrion Group is expected to increase further.